Conformity: Resolving the trade-off between performance and standardization in multi-unit organizations

Multi-unit organizations are a form of organizations where the geographically dispersed units provide similar products or services in different markets. Deciding on an appropriate level of centralization in such organizations presents a unique challenge. One the one hand the organizations want to maintain a consistent brand identity in all units through centralized control, but on the other hand, they want to provide the units with sufficient autonomy to respond to the challenges they face locally. Traditionally, this challenge was perceived to require a trade-off between performance and standardization, with performance demanding more decentralization and standardization requiring more centralized control. However, our research explores how organizations can potentially resolve this trade-off by promoting norms for knowledge-sharing and setting up the right communication channels, relying on the unit managers’ intrinsic tendency to conform to the behavior of their peers. We build an agent-based model of an organization with multiple interdependent units facing highly similar task environments to investigate how unit managers’ ability to communicate, share knowledge, and conform to peer practices might influence organizational dynamics. We find that, under specific communication network structures, increased decentralization can enhance both performance and standardization without sacrificing one or the other. Furthermore, we discover that centralization might still be preferable for standardization if the units are interdependent.